Christine Arena
11/01/2006
Corporate directors, fund managers and institutional investors hoping to burnish their reputations and their bottom lines by investing in companies that are environmentally or socially innovative should beware: When it comes to corporate social responsibility (CSR),
token gestures are often mistaken for true commitment. Real CSR is not a mode of marketing, philanthropy or legal action. In the best cases, it is a fully integrated business strategy that generates benefits to both society and shareholders.
In the worst cases, however, CSR is nothing more than a cynical, cosmetic exercise. Consider Chevron. In 2005, it launched a $50 million “Will You Join Us?” ad campaign conveying its commitment to energy efficiency and conservation. Yet the company presently spends only 2 percent of its record profits—$300 million out of $14 billion—on solutions to meet these favorable ends.
Following the Vioxx debacle, in which pharmaceutical giant Merck withdrew the arthritis drug from the market in the face of multiple lawsuits, the company increased philanthropic spending to $975 million and commissioned a $20 million “Patients Come First” advertising campaign highlighting the company’s strengths. Merck, however, has never acknowledged any wrongdoing, paid court-awarded damages to plaintiffs or, critics allege, fully addressed the internal factors that led to the Vioxx recall in the first place.
Lagging behind successful moves by Hewlett-Packard and Dell, Apple recently expanded its computer recycling program by offering free computer take-back with the purchase of a new Macintosh system. Unlike competitors, however, the company did not commit to specific goals for the program.
Today, these efforts attract more and more criticism. In the cases of Chevron and Merck, groups such as the Sierra Club and experts including FDA researcher David Graham question whether these companies’ actions match their rhetoric. In the case of Apple, publications such as Wired suggest that its efforts are too little, too late.
But the public haranguing they engender may not be the most troublesome aspect of these CSR campaigns, particularly for investors. What is significant is that each of these firms fails to seize larger market opportunities. They miss the chance to better leverage CSR as a means to spur innovation and build long-term value.
Consider the bottom-line possibilities if Chevron were to funnel far more of its $15 billion to $16 billion annual fossil fuel exploration and production budget into other energy sources, or if Merck instilled a stakeholder web of accountability to ensure that future drug scandals never occur. For its part, Apple could lead the computer industry in addressing the problem of computer disposal by building its computers from materials that are designed to be perpetually recycled, as opposed to ending up in landfills.
Sorting the Cynics
One way investors can distinguish between true and
false CSR is to monitor the quality and quantity of value produced. The bigger
the overall impact, the more substantive the approach. As with any business
practice, great CSR is all about great results. Truly responsible companies
wisely invest in two things: unmet needs and systemic change. They acknowledge
what society demands, where they fall short and what they uniquely provide—then
connect the dots.
In a strategy it calls “Ecomagination,” General Electric
plans to tackle problems such as climate change and water scarcity through the
application of innovative technologies. “We’re launching Ecomagination not
because it’s trendy or moral, but because it will accelerate our growth and make
us more competitive,” CEO Jeffrey Immelt told the press in 2005. Indeed, GE
reports that revenues from Ecomagination products, such as hybrid locomotives
and solar-powered water purifiers, reached $10 billion in 2005.
By
developing advances like Bio-PDO, an environmentally friendly polymer, DuPont
has saved more than $2 billion in overhead costs, prevented 11 metric tons of
CO2 from entering the atmosphere and accounted for 17 percent of its $26.6
billion in revenue. By 2010, DuPont hopes to derive 25 percent of its total
revenue through its endeavors.
GE and DuPont are not perfect companies with
flawless histories. Each still engages in activities that concern
environmentalists and other interest groups. But they are high-purpose companies
because their current business performance is driven by the values for which
they claim to stand. By acting on these values, these companies make the
environment—and their investors—better off.
 | Christine Arena is author of The High-Purpose Company: The Truly Responsible–and Highly Profitable–Firms That Are Changing Business Now, due out in January. |